Andy Kroll

Andy Kroll

Senior Reporter

Andy Kroll is Mother Jones' Dark Money reporter. He is based in the DC bureau. His work has also appeared at the Wall Street Journal, the Guardian, Men's Journal, the American Prospect, and TomDispatch.com, where he's an associate editor. Email him at akroll (at) motherjones (dot) com. He tweets at @AndyKroll.

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The Question Goldman Won't Answer

| Mon Apr. 26, 2010 9:24 AM EDT

Goldman Sachs, the besieged Wall Street baron, fired back at a Senate subcommittee this weekend by releasing a report of its own on the bank's role in the subprime mortgage markets leading up to the crash of 2008. The report (pdf) is a clear attempt by Goldman to counter claims that it intentionally "shorted," or bet against, the housing market, even as it peddled the kinds of mortgage-related products its traders were wagering would fail. Its loss of $1.7 billion in residential mortgage-related products in the 2008 fiscal year, and its small market share in the mortgage industry, are evidence that the firm was hardly the subprime bogeyman it's been made out to be, Goldman claims. "Goldman Sachs did not take a large directional 'bet' against the US housing market, and the firm was not consistently or significantly net 'short the market' in residential mortgage-related products in 2007 and 2008," the company says.

Of course, the story is far murkier than that. As McClatchy reported last year (and as Goldman neglects to mention), in 2006 and 2007 Goldman marketed some $39 billion in securities backed by toxic home loans to clients but neglected to mention that Goldman was betting against that same market. McClatchy also reported that Goldman, which had decided to start buying insurance against (i.e., betting against) the housing market in late 2006, used "offshore tax havens to shuffle its mortgage-backed securities to institutions worldwide, including European and Asian banks, often in secret deals run through the Cayman Islands, a British territory in the Caribbean that companies use to bypass U.S. disclosure requirements."

But there's one looming question that neither Goldman nor the press has answered: How much exactly did Goldman make from its big-time bets against the housing market? Goldman spokesman Lucas van Praag said in a statement on Saturday that the report released by the firm "demonstrates conclusively that we did not make a significant amount of money in the mortgage market"; however, in the set of emails released by the Senate investigations subcommittee, Goldman CEO Lloyd Blankfein writes in an email that "Of course we didn't dodge the mortgage mess. We lost money, then made more than we lost because of shorts." In a different email released by the subcommittee, Goldman CFO David Viniar reacts to news of losses in the mortgage markets, and of Goldman's subsequent gains, by writing, "Tells you what might be happening to people who don't have the big short."

How much Goldman made—whether it's negligible as company purports it to be, or more significant than that—remains to be seen. Did the firm merely try to counterbalance its long bets on the housing market with the shorts? Or did it reap a massive payday? This week's hearings in the investigation subcommittee, which bring to Washington top Goldman executives like Blankfein, could finally shed some light on this mystery.

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Inside Goldman Sachs' "Big Short"

| Sat Apr. 24, 2010 9:27 AM EDT

A newly released set of internal Goldman Sachs emails offers further evidence of how the investment firm knowingly bet big against the housing market—what one top executive called its "big short"—and even wagered against mortgage-tied products of its own creation. The documents, released this morning by a Senate committee investigating Goldman and other investment firms, will fuel charges that Goldman positioned itself against the interests of its clients and most Americans. And while not as severe as the Securities and Exchange Commission's ongoing suit against Goldman, the emails are sure to heap more pressure on the under-fire Wall Street titan.

In one October 2007 email exchange, a member of Goldman's fixed income, currency, and commodities desk, Michael Swenson, discusses the now-infamous mass downgrades of $32 billion of mortgage bonds by the rating agency Moody's that month. Those downgrades all but killed the subprime mortgage market, resulted in huge losses on Wall Street, and woke banks and traders up to the realization that the housing bubble was about to burst. For Goldman, though, that was good news, the emails show. In that same exchange, Swenson says Goldman's asset-backed securities desk "will be up between 30 and 35 [million]" on news of the downgrades. Another Goldman staffer responds, "Sounds like we will make some serious money."

A May 2007 exchange inside Goldman includes information on the "wipeout" of a mortgage security from Long Beach Mortgage Company, a former subsidiary of the failed bank Washington Mutual. The security also happened to be underwritten and sold by Goldman. One Goldman staffer says this is bad news, because it'll cost the firm $2.5 million; however, the same staffer adds that because Goldman had bet against that very same security, it netted $5 million, easily covering its losses.

Dem Defectors on Wall Street Reform?

| Fri Apr. 23, 2010 10:35 AM EDT

Senate Majority Leader Harry Reid (D-Nev.), has set the stage for a full Senate debate on the financial reform bill to begin Monday evening. Reid's decision to charge ahead on overhauling Wall Street—and not let closed-door talks drag on—drew fire from Republicans, like Sen. Susan Collins (R-Me.), who said a Monday cloture vote "would be unfortunate in view of the fact that both sides of the negotiations say that progress is being made." That said, Reid's push looks to be dividing Senate GOPers, who can't seem to agree on a unified strategy on financial reform, the Wall Street Journal reports. A bigger question, though, is whether all of Reid's own Democratic brethren stand behind his latest plan.

While numerous Dems took to the Senate floor yesterday to stump for the finance reform bill, an animated Sen. Chris Dodd (D-Conn.) said that not only were Republicans objecting to Reid's push but admitted that some "on the majority side as well" didn't necessarily want a Senate-wide debate so soon. Sen. Dick Durbin (D-Ill.), the majority whip, told Roll Call last week that he, too, wasn't sure whether all 59 Democrats supported the bill. That could mean Reid, Dodd, and other top Democrats merely need to twist a few more arms to ensure everyone's on board. Or are there some Senate Democrats not ready to take the financial reform battle to the floor?

Is Grassley the Dems' 60th Vote?

| Wed Apr. 21, 2010 2:58 PM EDT

Could Sen. Chuck Grassley (R-Ia.), a senior figure and power player in the GOP, be the 60th vote Democrats need to pass comprehensive financial reform? That's what today's passage of a sprawling piece of legislation from Senate agriculture committee overhauling derivatives, the complex financial products at the heart of the financial crisis, seems to suggest. A party-line split in the ag committee was expected, but Grassley surprised some by casting the lone GOP vote, bringing the tally to 13 to 8. The vote came as a surprise, and Grassley's support could embolden Democrats as they push for passage of their full finance bill, which could land on the Senate floor as early as Monday.

After the vote, Grassley waved off any suggestion that his derivatives vote will translate into support for the broader bill. "The derivatives piece is significant," Grassley was quoted as saying today, "but that larger bill has a number of flaws that need to be resolved before I'd support it." Of course Grassley would say that. The Iowa senator's vote today was enough of a rebuke to his peers—namely, Sen. Saxby Chambliss (R-Ga.), the agriculture committee's ranking member, whose amendment to roll back crucial parts of the bill was defeated on a party-line vote—that Grassley wasn't going to rub any more salt in the wound afterward.

Still, his defection is a significant crack in the GOP's opposition to financial reform, a subject almost entirely led by Democrats like Sens. Chris Dodd (D-Conn.), Jack Reed (D-RI), and others. It wouldn't be surprising to see Democrats pounce on Grassley's vote as leverage against Senate Republicans and as a way of drumming up a few more Republican votes when the full Senate votes on financial reform in the coming weeks.

Apart from Grassley, today's vote on derivatives marked a major victory for pro-reform lawmakers and advocates. The bill passed by the agriculture committee would force derivatives to be traded on exchanges, like stocks are now on the New York Stock Exchange. Derivatives trades would also be processed through what's called a clearinghouse, where parties involved in that transaction put up collateral for each deal and where the clearinghouse guarantees the trades and lessens the huge amounts of risk in the currently opaque, unregulated over-the-counter market. In a bold statement, the bill also calls for banks to break out their derivatives trading desks into separate operations, eliminating the chance of imploding swaps deals from dragging down an entire firm. And while the bill allows for a few exemptions—a narrow slice of derivatives users like farmers, utility companies, and manufacturers wouldn't have clearing or trading requirements—the bill is seen as a very tough piece of legislation. "Under Chairman Lincoln's strong leadership, the Senate Agriculture Committee voted out a bipartisan bill that will bring derivatives trading out of the dark, provide strong oversight of market participants, and combat fraud, abuse and manipulation," Treasury Secretary Tim Geithner said in a statement after the vote.

GOP: Now Finance Reform Is Good!

| Wed Apr. 21, 2010 8:11 AM EDT

It took them a week or so, but Republicans in the Senate finally realized that locking arms with big banks and their lobbyists does a doozy on your public image. Ever since Senate Minority Leader Mitch McConnell (R-Ky.) made the disingenuous claim early last week that the current finance bill would create "endless taxpayer-funded bailouts," and soon after reports emerged that McConnell and Sen. John Cornyn (R-Tex.) had met with top hedge fund managers in New York to discuss reform with them, the GOP has looked like the party of Goldman Sachs at a time of boiling public anger at bankers and financiers.

Now, predictably, the GOP is backtracking. Yesterday, Sen. Judd Gregg (R-RI) told a Bloomberg radio station he hoped for a bipartisan solution on financial reform, and later on Tuesday, more top GOPers pared back the partisan fighting and extended their olive branches. "I'm convinced now there is a new element of seriousness attached to this, rather than just trying to score political points...I think that's a good sign," McConnell said, according to the Washington Post. Sen. Richard Shelby (R-Ala.), the ranking member on the banking committee and a leading voice on financial reform, said he believed the Senate was "going to get there" on financial reform, adding that "we've got a few days to negotiate, and the spirit is good." Several other Republicans, like the Maine senatorial duo of Olympia Snowe and Susan Collins, could ultimately lend a bipartisan imprimatur to a finance bill, too. (Though no one's forgotten Snowe's health care back-out, so I wouldn't hold my breath.)

All of this is quite a reversal for the Republicans, who only last week drafted a letter outright opposing the finance bill. All 41 Senate Republicans signed the letter addressed to Senate Majority Leader Harry Reid (R-Nev.). But the reasoning behind their reversal is obvious: With the Goldman-SEC suit adding momentum to reform efforts (momentum that, some GOPers believe, might've been deliberately created), the GOP's opposition made them look like Wall Street's cronies. And with midterm elections to worry about, that's an image every politician right now wants to avoid.

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